Many people tend to take an annual vacation when they’re feed up with work. And after a year of pandemic-induced anxiety, fear, and loathing of anything coronavirus-related, it seems like everyone is ready for vacation. Or are we? The job market is still in shambles, Americans are actually quitting jobs at alarming rates, and businesses are struggling to fill vacant jobs. Whether or not you should go on vacation is up to you. But don’t you think you should be able to afford it? Many Americans are now applying for vacation loans. Let me tell you why a vacation loan is a bad idea.
But first, some statistics about Americans slowly getting back to air travel.
The average family spends about $4,700 on a vacation. Most tellingly, about 44% of the average vacation budget is spent on transportation costs throughout the vacation.
The world is mostly closed off but is slowly reopening after the pandemic terror of 2020. And it seems that Americans are going stir crazy and giving in to wanderlust.
About 2 million Americans are getting on planes every day now. In 2019, that estimate was almost 3 million passengers daily. And in 2020, that number almost went to zero and slowly crept up to about 1 million.
But is it the right time to go on vacation in the United States?
Perilous Financial Times for Wanderlust
The average American salary is about $50,000. This is not a lot of money if you have a growing family and live in a high cost of living city.
And the financial market is still recovering. Even though there are about 8 million job openings available, which is not a lot relative to before the pandemic, they aren’t being filled.
Over 44% of businesses say that they are having trouble finding workers to fill vacancies. Many of the available jobs are low-paying and involve working with the public which many people are still wary of.
And amazingly, over 4 million Americans proactively quit their jobs in April 2021. And that is a 20-year record.
Americans are quitting jobs to feel free, look for better work, and follow their aspirations. After a year of being disconnected from the world, Americans are ready to meet the world.
And take out personal loans just to go on vacation for some reason. Now, let me tell you what a vacation loan is and why a vacation loan is a bad idea.
What is a Vacation Loan
A vacation loan is simply a non-collateralized personal loan that you can use to cover the costs of a vacation.
The truth is that vacation loans are not specifically advertised as “vacation loans.” A vacation loan is usually just a P2P loan, or a traditional personal loan from a traditional bank if you can get one.
Depending on the lending prerequisites of the lender, you will need a credit score of 600 to 720 to qualify for a vacation loan.
Don’t expect a $50,000 credit line for a vacation loan. Your credit limit for a vacation loan could be $1,000 to $4,000, depending on your creditworthiness.
Since the financial crisis of 2008, it has been difficult to impossible for most people to get access to traditional personal loans. So, your personal loan will probably be a P2P loan or a peer-to-peer loan.
Now, here is why a vacation loan is a bad idea.
Why a Vacation Loan Is a Bad Idea
There are many reasons why a vacation loan is a bad idea. For one thing, you should go on a vacation to decompress and have fun.
Why would you start a vacation with the knowledge that you’re incurring debt to pay for it? And right after the end of your vacation, you will be paying off the debt in monthly installments for a year or two?
And you could end up finally paying off the vacation loan just in time to take out another one for your next vacation.
How does that make sense?
But if that point does not compel you, here are more reasons why getting a vacation loan is a bad idea.
You will pay interest rates ranging from 8% to 36% depending on the lender and your creditworthiness.
And if you desperately need to apply for a vacation to pay for a 7-day or 14-day vacation, then your credit score may not be perfect. So, be prepared to pay some high-interest rates.
Monthly Payment Plans
The objective of taking a vacation is to relax, enjoy a new environment, and banish your worries for a few days.
After your vacation is over, you will be sent monthly statements to pay off your vacation debt.
There is nothing relaxing about that.
How many bills did you have before applying for your vacation loan? Well, you just gained a new bill.
If you miss a payment or don’t pay it in full, you could ding your credit score and adversely affect your credit history.
The Vacation Loan Will Mostly Pay for Transportation
As previously mentioned, over 44% of most vacation budgets are dedicated to paying for transportation costs. That means almost half of your vacation budget will be used for getting to your destination, come home, and all transport costs during vacation.
Save Money and Make a Budget
If you want to go on vacation, make a budget and save money. Think about what destination you want to go to and plan for your trip. Consider how much money you will pay for transport, food and lodging, and excursions.
Many people spend half their vacation getting there and coming back home. Budget your money to make the most out of the experience.
You are better off taking these measures than applying for a vacation loan and getting into deeper debt.